SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: Commission file number:
SEPTEMBER 30, 2000 0-23488
CIBER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 38-2046833
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
5251 DTC PARKWAY
SUITE 1400
ENGLEWOOD, CO 80111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Telephone Number: (303) 220-0100
-----------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No ___
As of September 30, 2000, there were 59,574,833 shares of the Registrant's
common stock ($0.01 par value) outstanding.
CIBER, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Statements of Operations
Three and nine months ended September 30, 2000 and 1999 3
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 4
Consolidated Statements of Cash Flows
Nine months ended September 30, 2000 and 1999 5
Consolidated Statement of Shareholders' Equity
Nine months ended September 30, 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION 14
SIGNATURES 14
2
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
IN THOUSANDS, EXCEPT PER SHARE DATA 1999 2000 1999 2000
------------ ------------ ------------ ------------
Consulting services $176,400 $144,953 $533,631 $450,045
Other revenues 10,642 8,332 33,358 26,903
------------ ------------ ------------ ------------
Total revenues 187,042 153,285 566,989 476,948
------------ ------------ ------------ ------------
Cost of consulting services 118,601 99,081 347,072 306,776
Cost of other revenues 6,065 5,164 21,020 16,660
Selling, general and administrative expenses 42,953 39,263 126,673 120,663
Amortization of intangible assets 3,023 2,931 8,392 11,018
Nonrecurring and other expenses - - - 2,598
Goodwill impairment charge - 80,773 - 80,773
------------ ------------ ------------ ------------
Operating income (loss) 16,400 (73,927) 63,832 (61,540)
Interest and other income, net 1,489 214 2,799 1,065
Interest expense - (87) - (351)
------------ ------------ ------------ ------------
Income (loss) before income taxes 17,889 (73,800) 66,631 (60,826)
Income tax expense 7,629 3,088 27,313 8,757
------------ ------------ ------------ ------------
Net income (loss) $ 10,260 $ (76,888) $ 39,318 $(69,583)
============ ============ ============ ============
Earnings (loss) per share - basic $ 0.18 $ (1.32) $ 0.68 $ (1.20)
Earnings (loss) per share - diluted $ 0.18 $ (1.32) $ 0.67 $ (1.20)
Weighted average shares - basic 57,464 58,105 57,428 57,987
Weighted average shares - diluted 58,423 58,105 58,780 57,987
See accompanying notes to consolidated financial statements.
3
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
IN THOUSANDS, EXCEPT PER SHARE DATA 1999 2000
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,858 $ 8,150
Accounts receivable, net 139,418 142,874
Prepaid expenses and other current assets 7,595 6,866
Deferred income taxes 2,960 4,064
---------- ----------
Total current assets 152,831 161,954
---------- ----------
Property and equipment, at cost 55,510 58,153
Less accumulated depreciation and amortization (26,947) (32,923)
---------- ----------
Net property and equipment 28,563 25,230
---------- ----------
Intangible assets, net 233,975 136,822
Deferred income taxes 1,773 3,253
Other assets 5,426 5,075
---------- ----------
Total assets $ 422,568 $ 332,334
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ - $ 2,690
Accounts payable 18,102 14,489
Acquisition costs payable 15,268 1,853
Accrued compensation and payroll taxes 31,841 26,689
Deferred revenues 874 725
Other accrued expenses and liabilities 4,945 7,151
Income taxes payable 3,751 1,315
Deferred income taxes 67 -
---------- ----------
Total current liabilities 74,848 54,912
Bank line of credit 5,355 -
---------- ----------
Total liabilities 80,203 54,912
---------- ----------
Minority interest 109 1,109
Contingent redemption value of put options - 2,237
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, no shares issued - -
Common stock, $0.01 par value, 100,000,000 shares authorized,
59,414,000 and 59,575,000 shares issued and outstanding 594 596
Additional paid-in capital 230,615 229,029
Retained earnings 139,312 69,611
Accumulated other comprehensive loss - (645)
Treasury stock, 1,717,000 and 1,600,000 shares, at cost (28,265) (24,515)
---------- ----------
Total shareholders' equity 342,256 274,076
---------- ----------
Total liabilities and shareholders' equity $ 422,568 $ 332,334
========== ==========
See accompanying notes to consolidated financial statements.
4
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
IN THOUSANDS 1999 2000
------------- ------------
OPERATING ACTIVITIES:
Net income (loss) $ 39,318 $(69,583)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Goodwill impairment charge - 80,773
Depreciation and amortization 14,772 17,835
Deferred income taxes 77 (2,393)
Gain on sale of LogisticsPRO (777) -
Other 454 (583)
Changes in operating assets and liabilities,
net of the effects of acquisitions and dispositions:
Accounts receivable (8,399) (5,234)
Other current and long-term assets (318) (2,828)
Accounts payable (5,123) (1,486)
Accrued compensation and payroll taxes 11,168 (4,594)
Deferred revenues (1,939) 344
Other accrued expenses and liabilities (3,666) 2,206
Income taxes payable 7,146 (2,049)
-------- --------
Net cash provided by operating activities 52,713 12,408
-------- --------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (22,362) (13,418)
Reduction of advances to Agilera, Inc. - 9,908
Purchases of property and equipment (13,290) (6,139)
Purchases of investments - (344)
Sales of investments - 1,983
-------- --------
Net cash used in investing activities (35,652) (8,010)
-------- --------
FINANCING ACTIVITIES:
Proceeds from sales of common stock, net 13,715 9,087
Sale of stock by subsidiary - 175
Proceeds from sale of put options - 338
Net payments on bank line of credit - (2,665)
Purchases of treasury stock (41,317) (5,774)
-------- --------
Net cash (used in) provided by financing activities (27,602) 1,161
-------- --------
Effect of foreign exchange rate changes on cash - (267)
Net (decrease) increase in cash and cash equivalents (10,541) 5,292
Cash and cash equivalents, beginning of period 62,108 2,858
======== ========
Cash and cash equivalents, end of period $ 51,567 $ 8,150
======== ========
See accompanying notes to consolidated financial statements.
5
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
---------------- PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
IN THOUSANDS SHARES AMOUNT CAPITAL EARNINGS LOSS STOCK EQUITY
----------------------------------------------------------------------------------------
BALANCES AT JANUARY 1, 2000 59,414 $594 $ 230,615 $ 139,312 $ -- (28,265) $ 342,256
----------------------------------------------------------------------------------------
Net loss -- -- -- (69,583) -- -- (69,583)
Unrealized loss on investments,
net of tax of $ 258,000 -- -- -- -- (386) -- (386)
Foreign currency translation -- -- -- -- (259) -- (259)
----------
Comprehensive loss (70,228)
Employee stock purchases
and options exercised 158 2 (321) (118) -- 9,524 9,087
Gain on sale of stock by subsidiary -- -- 101 -- -- -- 101
Tax benefit from exercise
of stock options -- -- 387 -- -- -- 387
Proceeds from sale of put options -- -- 338 -- -- -- 338
Contingent liability of put options -- -- (2,237) -- -- -- (2,237)
Compensation expense related
to stock and stock options 3 -- 146 -- -- -- 146
Purchases of treasury stock -- -- -- -- -- (5,774) (5,774)
----------------------------------------------------------------------------------------
BALANCES AT SEPTEMBER 30, 2000 59,575 $596 $ 229,029 $ 69,611 $(645) $(24,515) $ 274,076
----------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
6
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of CIBER, Inc. and
subsidiaries ("CIBER" or the "Company") have been prepared without audit.
Certain information and note disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in CIBER's Annual Report on
Form 10-KT for the period ended December 31, 1999. In the opinion of
management, these unaudited consolidated financial statements include all
adjustments necessary for a fair presentation of the financial position and
results of operations for the periods presented. Interim results of
operations for the three and nine-month periods ended September 30, 2000 are
not necessarily indicative of operating results that can be expected for the
full year.
INCOME TAXES. CIBER records interim period income tax expense based on
management's best estimate of the effective tax rate expected to be
applicable for the full fiscal year.
MINORITY INTEREST. CIBER owns approximately 88% of Neovation, Inc.
("Neovation"). The minority stockholders' proportionate share of the equity
of Neovation is reflected as minority interest in the consolidated balance
sheet. The minority stockholders' proportionate share of the net loss of
Neovation is included in interest and other income, net in the consolidated
statement of operations. The minority interest in the net loss of Neovation
was $125,000 and $226,000 for the three and nine months ended September 30,
2000, respectively.
EARNINGS (LOSS) PER SHARE. Earnings (loss) per share - basic is computed by
dividing income (loss) available to common shareholders by the weighted
average number of common shares outstanding for the period. Earnings (loss)
per share -diluted includes the effects of the potential dilution of CIBER's
stock options and put options, determined using the treasury stock method.
Dilutive securities are excluded from the computation in periods in which
they have an antidilutive effect. As a result, earnings (loss) per share -
diluted is the same as earnings (loss) per share - basic when CIBER reports a
net loss. Weighted average shares - diluted would have been 58,803,000 and
58,931,000 for the three and nine months ended September 30, 2000,
respectively, if CIBER had reported net income for the period. In addition,
the number of antidilutive stock options (options whose exercise price is
greater than the average CIBER stock price during the period) omitted from
the computation of weighted average shares - diluted was 3,241,549 and
5,971,078 for the three months ended September 30, 1999 and 2000,
respectively, and 2,136,843 and 3,821,539 for the nine months ended September
30, 1999 and 2000, respectively.
COMPREHENSIVE LOSS. Comprehensive loss includes changes in the balances of
items that are reported directly as a separate component of shareholders'
equity in the consolidated balance sheets. Comprehensive loss includes net
income (loss) plus changes in net unrealized loss on investments and foreign
currency translation adjustments.
INVESTMENTS. Investments consist of marketable equity securities. Investments
are classified as available-for-sale and are recorded at fair value, which is
determined based on quoted market prices. Investments of $652,000 are
included in prepaid expenses and other current assets on the consolidated
balance sheet at September 30, 2000. The net unrealized gain or loss, net of
tax, is included in accumulated other comprehensive loss on the consolidated
balance sheet. Realized gains and losses on the sale of investments are
included in interest and other income, net in the consolidated statements of
operations.
FOREIGN CURRENCY TRANSLATION. The assets and liabilities of CIBER's foreign
subsidiaries are generally translated into U.S. dollars at current exchange
rates, and revenues and expenses are translated at average exchange rates for
the period. The resulting cumulative translation adjustment is included in
accumulated other comprehensive loss on the consolidated balance sheet.
Foreign currency transaction gains and losses are included in the results of
operations as incurred.
7
SUBSIDIARY STOCK TRANSACTIONS. Gains and losses on stock transactions by our
subsidiaries and equity investees are recognized directly in shareholders'
equity through an increase or decrease to additional paid-in capital in the
period in which the transaction occurs.
(2) REVOLVING LINE OF CREDIT
CIBER has a $35 million unsecured revolving line of credit with a bank.
Outstanding borrowings bear interest at the London Interbank Offered Rate
("LIBOR") plus 2%. The credit agreement was extended in November 2000 and
expires on July 1, 2001.
(3) AGILERA INVESTMENT
In March 2000, CIBER's wholly-owned subsidiary, Agilera, Inc. ("Agilera"),
formerly CIBER Enterprise Outsourcing, Inc., sold 13,846,154 shares of its
$.001 par value Series A Convertible Preferred Stock for $45 million to new
investors. In connection with the preferred stock sale, Agilera paid CIBER
$9.9 million in repayment of its advances to Agilera as of December 31, 1999,
reducing CIBER's historical cost basis in its remaining ownership in Agilera
to zero. As a result of participating rights obtained by the preferred
stockholders in connection with their investment, CIBER, which owns
approximately 95% of the outstanding common shares of Agilera, retained an
approximate 41% voting interest in Agilera. Accordingly, effective January 1,
2000, for financial reporting purposes, CIBER no longer consolidates the
results and accounts of Agilera and accounts for its interest in Agilera
using the equity method of accounting.
In August 2000, Agilera obtained $85 million of additional equity financing.
This transaction reduced CIBER's voting interest in Agilera to approximately
24%.
CIBER has provided and will continue to provide software implementation and
other services to Agilera as a subcontractor under Agilera customer
contracts. CIBER's revenue attributable to services provided to Agilera was
$2,396,000 and $6,042,000 during the three and nine months ended September
30, 2000, respectively.
(4) NONRECURRING AND OTHER EXPENSES
In March 2000, CIBER announced its intent to sell less than 20% of the common
stock of its wholly-owned subsidiary, DigiTerra, Inc. ("DigiTerra"), in an
initial public offering ("IPO"). CIBER intends to distribute ("Spin-off") the
balance of the shares of DigiTerra to CIBER shareholders following the IPO,
subject to receiving Board approval and a favorable tax ruling, as well as
favorable market conditions. Nonrecurring charges incurred during the quarter
ended June 30, 2000 were for professional fees related to the Spin-off.
Direct costs of the IPO, such as underwriters' commissions and legal and
accounting fees, will be deducted from the proceeds of the offering.
Nonrecurring charges incurred during the quarter ended March 31, 2000 were
for employee severance costs as well as an asset write-down resulting from
CIBER's planned separation of DigiTerra. All of the severance costs were paid
during the quarter ended March 31, 2000.
(5) GOODWILL IMPAIRMENT CHARGE
During the quarter ended September 30, 2000, CIBER recorded a goodwill
impairment charge of $80.8 million to write-down the goodwill associated with
certain acquisitions completed during 1999. These businesses were acquired at
a time when the value of IT services companies was much higher. In addition,
approximately 88% of the goodwill impairment charge related to businesses
acquired for consideration paid 100% in CIBER stock. Stock consideration
typically involves a premium over cash consideration. These acquired
operations experienced a decrease in the demand for their services as post
Year 2000 IT spending of many companies decreased. In addition, in the spring
of 2000, the IT services requirements of dot.com companies decreased
significantly. This has lead to greater competition within the IT services
industry and as a result, revenues, cash flows and expected future growth
rates of these operations have decreased.
Due to the significance of the change in conditions, management performed an
evaluation of the recoverability of the goodwill related to these operations
in accordance with Statement of Financial Accounting Standards ("SFAS")
8
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." Because the estimated future
undiscounted cash flows of these operations were less than the carrying value
of the related goodwill, an impairment charge was required. The impairment
charge represents the amount required to write-down this goodwill to
management's best estimate of these operations' future discounted cash flows.
As a result of the impairment charge, CIBER reduced the recorded value of
goodwill at July 1, 2000 related to its acquisition of Business Impact
Systems, Inc. ("BIS") to $9.8 million and reduced the remaining goodwill
amortization period to 10 years. Similarly, CIBER reduced the goodwill
related to Integration Software Consultants, Inc. ("ISC") to $11.7 million
and reduced the remaining goodwill amortization period to 14 years. In
addition, CIBER wrote-off all goodwill related to York & Associates, Inc.
("York") because it exited the primary business for which York was acquired.
CIBER also reduced the goodwill associated with Interactive Papyrus, Inc. and
Paragon Solutions, Inc. to $924,000 and $1.9 million, respectively.
The reduction of the remaining goodwill amortization periods of BIS and ISC
resulted in additional goodwill amortization of $165,000 during the three and
nine months ended September 30, 2000, which increased the net loss by
$165,000 for the same periods.
(6) SEGMENT INFORMATION
CIBER has identified its segments by products and services offered. CIBER
evaluates each of its segments based on operating income before nonrecurring
and other expenses and amortization of intangible assets and without
allocation of corporate costs. Reportable segments are CIBER operations,
DigiTerra, Neovation and, through December 31, 1999, Agilera. CIBER
operations provides application support, data warehousing consulting,
middleware and systems integration, IT outsourcing, networking solutions and
products and management consulting. DigiTerra provides enterprise software
selection, implementation and integration services, including Commerce One,
PeopleSoft, SAP, Oracle, J. D. Edwards, Lawson, LogisticsPRO and Siebel
Systems, among others, as well as related hardware sizing and procurement.
Neovation provides strategic, technical and creative solutions including
digital strategy assessment and evolution, interactive marketing and branding
strategies and interactive web site development and back-end integration.
Agilera provides enterprise application hosting or application service
provider ("ASP") services and was consolidated with CIBER through December
31, 1999. The following presents certain financial information about CIBER's
reportable segments:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
------------------------------ -----------------------------
Revenues:
CIBER operations $ 138,055 $ 113,040 $ 420,917 $ 350,463
DigiTerra 48,835 37,766 147,382 118,985
Neovation - 3,453 - 10,708
Agilera 1,044 - 2,635 -
Inter-segment (892) (974) (3,945) (3,208)
--------- --------- --------- ---------
Total $ 187,042 $ 153,285 $ 566,989 $ 476,948
========= ========= ========= =========
Income (loss) from operations:
CIBER operations $ 16,919 $ 13,253 $ 57,372 $ 41,033
DigiTerra 8,612 2,403 28,932 7,600
Neovation - (889) - (1,829)
Agilera (1,337) - (2,102) -
Corporate (4,771) (4,990) (11,978) (13,955)
--------- --------- --------- ---------
Total 19,423 9,777 72,224 32,849
Amortization of intangibles (3,023) (2,931) (8,392) (11,018)
Nonrecurring and other expenses - - - (2,598)
Goodwill impairment charge - (80,773) - (80,773)
Net interest and other income 1,489 127 2,799 714
--------- --------- --------- ---------
Income (loss) before income taxes $ 17,889 $ (73,800) $ 66,631 $ (60,826)
========= ========= ========= =========
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO. WITH THE EXCEPTION OF HISTORICAL MATTERS AND
STATEMENTS OF CURRENT STATUS, CERTAIN MATTERS DISCUSSED BELOW ARE
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM TARGETS OR
PROJECTED RESULTS. WITHOUT LIMITING THE FOREGOING, THE WORDS "BELIEVES,"
"ANTICIPATES," "PLANS," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY INCLUDE, AMONG OTHERS, GROWTH THROUGH BUSINESS
COMBINATIONS AND INTERNAL EXPANSION, THE ABILITY TO ATTRACT AND RETAIN
QUALIFIED CONSULTANTS, DEPENDENCE ON SIGNIFICANT RELATIONSHIPS AND THE
ABSENCE OF LONG-TERM CONTRACTS, MANAGEMENT OF A LARGE AND RAPIDLY GROWING
BUSINESS, PROJECT RISKS, PRICING AND MARGIN PRESSURES, COMPETITION, POTENTIAL
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS, PRICE VOLATILITY, AND
INTERNATIONAL EXPANSION. MANY OF THESE FACTORS ARE BEYOND THE COMPANY'S
ABILITY TO PREDICT OR CONTROL. PLEASE REFER TO A DISCUSSION OF THESE AND
OTHER FACTORS IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KT. THE COMPANY
DISCLAIMS ANY INTENT OR OBLIGATION TO UPDATE PUBLICLY SUCH FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR
OTHERWISE. IN ADDITION, AS A RESULT OF THESE AND OTHER FACTORS, THE COMPANY'S
PAST FINANCIAL PERFORMANCE SHOULD NOT BE RELIED ON AS AN INDICATION OF FUTURE
PERFORMANCE.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
CIBER's revenues for the three months ended September 30, 2000 decreased 18%
to $153.3 million from $187.0 million for the quarter ended September 30,
1999. This represents an 18% decrease in consulting services revenues and a
planned decrease in other revenues, primarily sales of computer hardware
products, which decreased to $8.3 million for the three months ended
September 30, 2000 from $10.6 million for the same quarter last year. CIBER
operations revenues decreased 18% while DigiTerra revenues decreased 23%,
when compared to the same period last year.
Gross margin percentage decreased to 32.0% of revenues for the three months
ended September 30, 2000 from 33.3% of revenues for the same quarter of last
year. This decrease is due to declining gross margins on both consulting
services and other revenues. Consulting services gross margins declined
primarily due to a decrease in the utilization levels of professional staff.
Selling, general and administrative expenses ("SG&A") decreased to $39.3
million for the three months ended September 30, 2000 from $43.0 million for
the same quarter last year, while as a percentage of sales, SG&A increased to
25.6% for the three months ended September 30, 2000 compared to 23.0% for the
same quarter last year. This reflects the semi-variable nature of SG&A. CIBER
incurred additional SG&A in 2000 related to marketing and branding
initiatives.
The September 2000 quarter continued to reflect an industry-wide shift in IT
spending, principally resulting from the resolution of the Y2K issue and ERP
curtailments. Many companies reduced IT expenditures beginning mid 1999 due
to completion of Y2K and ERP specific projects and a general tendency to
minimize new IT initiatives during the end of 1999. This adversely impacted
CIBER, particularly in its mainframe staffing and ERP related service
offerings. There is a significant industry trend toward new IT services
driven by the internet and increased bandwidth availability. These new
services include web-designed, e-business technologies, customer relationship
management ("CRM") and supply chain software, among others. CIBER has focused
its efforts to deliver these newer IT services. These efforts include new
alliances with independent software vendors, such as Commerce One and Siebel,
and the realignment of the Company's professional and sales personnel toward
a greater focus on e.business services. CIBER believes it will be able to
grow revenues from newer IT services and this growth will help offset
declining revenues from traditional services. In addition, the IT services
industry was negatively impacted during the September 2000 quarter by the
shift in investor sentiment, commencing in the Spring of 2000, away from
development and early stage dot.com businesses. As a result, industry demand
for IT services by dot.com companies decreased significantly. This has lead
to greater competition within the IT services industry.
10
CIBER experiences some seasonality due to holidays. CIBER's business days per
quarter in 2000 are 65 in the first quarter, 64 in the second quarter, 63 in
the third quarter and 61 in the fourth quarter. In addition, because of the
increased holidays, vacation usage is typically the highest in the fourth
quarter. Excluding other factors, increased holidays and vacations would
cause lower revenues and lower operating income.
During the quarter ended September 30, 2000, CIBER recorded a goodwill
impairment charge of $80.8 million to write-down the goodwill associated with
certain acquisitions completed during 1999. This charge represents the amount
required to write-down the goodwill to management's best estimate of the
future discounted cash flows of the acquired operations.
Amortization of intangible assets decreased to $2.9 million for the three
months ended September 30, 2000 from $3.0 million for the same quarter last
year. This decrease was due to the goodwill write-down that occurred during
the quarter ended September 30, 2000.
Net other income, including interest income and interest expense, decreased
to $127,000 for the three months ended September 30, 2000 from $1.5 million
for the same quarter last year. Net other income for the three months ended
September 30, 1999 includes a $777,000 gain on the sale of the LogisticsPro
software business. The remaining fluctuations in net other income are
primarily based on average cash balances invested or amounts borrowed under
the line of credit during the period.
Tax expense of $3.1 million was recorded during the quarter ended September
30, 2000 even though a pre-tax loss was reported resulting in an effective
tax rate of (4.2%) for the three months ended September 30, 2000 as compared
to 42.6% for the same quarter of last year. Tax expense was recorded for the
quarter ended September 30, 2000 because most of the goodwill impairment
charge was not deductible for income tax purposes since the majority of the
impaired goodwill related to non-taxable acquisitions. As a result of the
goodwill write-down, non-deductible goodwill amortization was approximately
$975,000 during the quarter ended September 30, 2000 as compared to $2.0
million during the quarter ended June 30, 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
CIBER's revenues for the nine months ended September 30, 2000 decreased 16%
to $476.9 million from $567.0 million for the nine months ended September 30,
1999. This represents a 16% decrease in consulting services revenues and a
planned decrease in other revenues, primarily sales of computer hardware
products, which decreased to $26.9 million for the nine months ended
September 30, 2000 from $33.4 million for the nine months ended September 30,
1999. CIBER operations revenues decreased 17% while DigiTerra revenues
decreased 19%, when compared to the same period last year.
Gross margin percentage decreased to 32.2% of revenues for the nine months
ended September 30, 2000 from 35.1% of revenues for the nine months ended
September 30, 1999. This decrease is due to declining gross margins on
consulting services offset partially by improved gross margins on other
revenues. Consulting services gross margins declined primarily due to a
decrease in the utilization levels of professional staff.
Selling, general and administrative expenses ("SG&A") decreased to $120.7
million for the nine months ended September 30, 2000 from $126.7 million for
the same period last year, while as a percentage of sales, SG&A increased to
25.3% for the nine months ended September 30, 2000 compared to 22.3% for the
same period last year. This reflects the semi-variable nature of SG&A. CIBER
incurred additional SG&A in 2000 related to marketing and branding
initiatives.
Nonrecurring and other expenses of $2.6 million were incurred during the nine
months ended September 30, 2000. Of this charge, $2.3 million was incurred
during the quarter ended March 31, 2000, of which $1.3 million was due to
severance costs resulting from involuntary terminations related to personnel
realignment and $975,000 was due to an asset write-down. The remaining
$323,000 was due to professional fees resulting from CIBER's planned
separation of its subsidiary, DigiTerra, Inc. and was incurred during the
quarter ended June 30, 2000.
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During the nine months ended September 30, 2000, CIBER recorded a goodwill
impairment charge of $80.8 million to write-down the goodwill associated with
certain acquisitions completed during 1999. This charge represents the amount
required to write-down the goodwill to management's best estimate of the
future discounted cash flows of the acquired operations.
Amortization of intangible assets increased to $11.0 million for the nine
months ended September 30, 2000 from $8.4 million for the nine months ended
September 30, 1999. This increase was due to the additional intangible assets
resulting from acquisitions during the past year, offset by a decrease due to
the goodwill write-down that occurred during the nine months ended September
30, 2000.
Net other income, including interest income and interest expense, decreased
to $714,000 for the nine months ended September 30, 2000 from $2.8 million
for the nine months ended September 30, 1999. Net other income for the nine
months ended September 30, 1999 includes a $777,000 gain on the sale of the
LogisticsPro software business. The remaining fluctuations in net other
income are primarily based on average cash balances invested or amounts
borrowed under the line of credit during the period.
Tax expense of $8.8 million was recorded during the nine months ended
September 30, 2000 even though a pre-tax loss was reported resulting in an
effective tax rate of (14.4%) for the nine months ended September 30, 2000 as
compared to 41.0% for the same period of last year. Tax expense was recorded
for the nine months ended September 30, 2000 because most of the goodwill
impairment charge was not deductible for income tax purposes since the
majority of the impaired goodwill related to non-taxable acquisitions. In
addition, tax expense for the nine months ended September 30, 2000 reflects
the effects of increased non-deductible amortization and other non-deductible
expense on a reduced income.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, CIBER had $107.0 million of working capital and had a
current ratio of 2.9:1. The Company has primarily used its operating cash
flow and the net proceeds from public offerings to finance working capital
needs and acquisitions. CIBER believes that its cash and cash equivalents on
hand, its operating cash flow and its available line of credit will be
sufficient to finance working capital needs through at least the next year.
In June 1999, CIBER's Board of Directors authorized the repurchase of up to
10% of CIBER's outstanding stock. CIBER may use significant amounts of cash
for repurchases of its stock or to purchase businesses. As a result, CIBER
may borrow to finance such activities. Future borrowings may include bank,
private or public debt. CIBER has a $35 million revolving line of credit with
a bank. There was $2,690,000 outstanding under this bank line at September
30, 2000. The credit agreement expires in July 2001, but management expects
it to be renewed on similar terms.
Net cash provided by operating activities was $12.4 million and $52.7 million
for the nine months ended September 30, 2000 and 1999, respectively, which is
reflective primarily of the reduced income, excluding the non-cash goodwill
impairment charge, in the nine months ended September 30, 2000.
Net cash used in investing activities was $8.0 million and $35.7 million
during the nine months ended September 30, 2000 and 1999, respectively. CIBER
used cash of $13.4 million and $22.4 million during the nine months ended
September 30, 2000 and 1999, respectively, for acquisitions. CIBER received
$9.9 million from Agilera in 2000 as repayment of advances. CIBER purchased
property and equipment of $6.1 million and $13.3 million during the nine
months ended September 30, 2000 and 1999, respectively. Purchases of property
and equipment have decreased in the current year as CIBER had made a number
of significant purchases related to back office systems and technology
infrastructure in 1999.
Net cash provided by (used in) financing activities was $1.2 million and
($27.6) million during the nine months ended September 30, 2000 and 1999,
respectively. CIBER obtained net cash proceeds from sales of common stock to
employees of $9.1 million and $13.7 million during the nine months ended
September 30, 2000 and
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1999, respectively. CIBER purchased treasury stock for $5.8 million and $41.3
million during the nine months ended September 30, 2000 and 1999,
respectively.
RECENT AND PROPOSED ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101, as
amended, is effective no later than CIBER's quarter ending December 31, 2000.
CIBER does not believe that the impact, if any, that SAB 101 might have on
its financial position or results of operations would be significant.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CIBER is exposed to a variety of market risks, including foreign currency
fluctuations and changes in interest rates on it borrowings. CIBER has no
activities in derivative financial or commodity instruments.
FOREIGN EXCHANGE. CIBER is exposed to foreign exchange rate fluctuations as
the financial results of foreign subsidiaries are translated into U.S.
dollars in consolidation. As exchange rates vary, these results, when
translated, may vary from expectations and adversely impact CIBER's financial
position, results of operations or cash flows. During the nine months ended
September 30, 2000, approximately 2% of CIBER's total revenues was
attributable to foreign operations. CIBER does not enter into forward
exchange contracts as a hedge against foreign currency exchange risk on
transactions denominated in foreign currencies or for speculative or trading
purposes. CIBER believes that its exposure to foreign currency exchange risk
at September 30, 2000 is not material.
INTEREST RATES. CIBER has a $35 million revolving line of credit with a bank.
As of September 30, 2000, the Company had $2.7 million outstanding under this
line of credit. The interest rate on the line of credit is based on LIBOR,
plus 2%. Therefore, as LIBOR fluctuates, the Company may experience changes
in interest expense that could impact financial results.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 10.1 Unsecured Credit Agreement with UMB Bank Colorado
dated November 1, 2000
Exhibit 27.1 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned there
unto duly authorized.
CIBER, INC.
(Registrant)
Date November 7, 2000 By /s/ Mac J. Slingerlend
---------------- -------------------------
Mac J. Slingerlend
Chief Executive Officer and President
Date November 7, 2000 By /s/ Richard A. Montoni
---------------- -------------------------
Richard A. Montoni
Chief Financial Officer and Executive
Vice President
14